Running head: EXECUTIVE REMUNERATION Name of the Student Name of the University Author note
1EXECUTIVE REMUNERATION Table of Contents Introduction:....................................................................................................................................2 Literature Review:...........................................................................................................................2 Determination of level of compensation:....................................................................................2 Theoretical explanation for High pay:.........................................................................................3 Executive compensation and firm performance:.........................................................................3 Effect of internal corporate governance on CEO compensation and firm performance:............4 Discussion and Analysis:.................................................................................................................5 Ethical issues in 2016:.................................................................................................................5 Social Criteria in CEO’s compensation package:........................................................................5 Benefits:.......................................................................................................................................5 Drawbacks:..................................................................................................................................6 CBA executive remuneration comparison and changes:.............................................................6 Review and Analysis of Changes:...............................................................................................8 Recommendation:............................................................................................................................9 References:....................................................................................................................................10
2EXECUTIVE REMUNERATION Introduction: The idea of linking high pay packages with the executives of various Companies for their exquisite skills and jobs have been the norm for a very long period of time. It is widely believed that the executives must be paid handsomely for their top notch services and cultural changes brought into the organization. There is a limited pool of the best executive talents and failing to pay their high end salaries may compel them to flock to better places. This notion has been the backbone of the high pays. This trend has continued despite the severe drop in the share prices of thevariouscompanieswhichhavefollowedthecultureofpayinghandsomelytotheir executives. In such a scenario, the shareholders are not very impressed and they want to withdraw their generous pay packets made to their company executives. This report aims to throw some light and analyze the executive compensation for the financial year 2016-17 for Commonwealth Bank of Australia. In addition to this, the report shall also look into the various accounting provisions regarding executive compensation in the Australian context. Literature Review: Determination of level of compensation: There have been a variety of factors which have been instrumental in influencing the level of pay packets provided to the executives. According to the report compiled by Shields and O’Donnell risk, responsibility and organizational size are some of the primary factors on which the level of executive remuneration depends. Globalization and scarcity of quality executives also have impacted the executive remuneration of the companies.
3EXECUTIVE REMUNERATION Theoretical explanation for High pay: There are various theoretical explanations behind this heavy pay; Adam Hartung of Forbes has said that a CEO and other executives earn so much because ‘they can’ (Forbes Welcome, 2018) A CEO practically sets up his or her own salary and the board has the power to change it but they seldom do it, because the board generally comprises of Ex-CEOs and it doesn’t do much good to the reputation of the former ones to alter the salaries of the present ones. The Companies hire external lawyers and consultants to review the pay packets and the performances of the executives, but they mostly hired by the CEOs themselves(Choe, 2014). These external reviewers generally give their nod to such exorbitant pay packets justifying the power, and the pressure of the high profile jobs of these CEOs. Executive compensation and firm performance: The influence of the remuneration of the CEO on the performance of the firms is profound. Generally it is seen, that a positive relationship exists between the two. It is because, when the firm’s performance increases, so does the company’s profitability and the CEO’s pay. A study conducted by Sigler in 2011 concluded that there is a strong and positive relationship between the two. In 2011, coverage on this report was done by BBC and it was concluded from the coverage that the high pay of the company executives has a corrosive impact on not only the economy as a whole but also affects the efficiency, performance and capabilities of the employees of the firm (Schultz et al., 2013). This is turn has serious implications on the firm’s performance. Another study performed by Leonard in 1995 suggests that a firm with long term
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